Fertiliser companies cash in on Bio fuel growth

Bio fuel energy produced from grains, sugar and vegetable oils is fast being recognised as a way of replacing traditional energy sources, like oil and gas, which is a good news for fertiliser producers.

This new form of energy is having a positive spin-off for Russian fertiliser producers who've seen prices for the commodity skyrocket.

Bio fuels are not yet widely used, but as environmentalists and politicians jump on the bandwagon it is pushing up demand for cereals, and the fertilisers that feed them.

The shares of fertiliser companies have risen dramatically. Israel Chemicals is up 30%, and Finland's Kemira has risen by 75% since the start of this year.

Russian companies are no exception: the leader is RTS-traded Uralkaliy with 85% growth.

President of Russia-based Akron, one of the industry leaders, sees two reasons for the growth.

“High prices for raw materials like natural gas and the demand-supply ratio are playing in our favour – demand is growing 2-3% annually and the industry cannot keep up,” stated Ivan Antonov, the president of Akron company.

Another factor is the growing fashion for bio fuel, which is seen as a way to replace traditional sources of energy, mainly oil and gas. Bio fuel is produced from grains, sugar and vegetable oils. When turned into alcohol, they can be used in place of fossil fuels.

The major producers are the U.S. with 30% of the market, Brazil, China and India.

Bio fuel has so far replaced only 1% of oil production around the world – with little demand or distribution so far. But enthusiasts see this as a sign not of failure but potential. Bio fuel production in Russia is in its early stages. Akron's president says the answer is government subsidies.

“For the moment, bio fuel turns out to be very expensive. Almost all countries interested in its expansion provide sizable funds from the state budget. And it is a question whether those funds will be enough,” added Mr Antonov.

But Russia is already gaining – producing 12% of the world's chemical fertilizers – and being the biggest single exporter.

“Currently we're evidencing extremely strong cycle on the fertilizer market. We'll expect acceleration of long-term growth in demand for fertilizers from usual 2-3% annually to 4%. We will still expect a very strong growth in domestic consumption in the coming years – 8-10% annually. Russia will be among the leaders in terms of domestic growth along with China, India and Brazil,” concluded Mikhail Stiskin, chemical analyst from Troika Dialogue Group.